New tax bill : What It means for entrepreneurs

- Jay Maharjan

Though the current bi-partisan bill is not exactly what most entrepreneurs and businesses wanted, it does have much needed incentives for entrepreneurs.

Bi-partisan effort

Bill clinton said it best during a recent press conference that there is never a perfect bi-partisan bill in the eye of the partisan. Though entrepreneurs and corporate America would simply want to extend the bush’s tax cut, this bill is not that bad after all.
The Issues:

a. Access to capital

Entrepreneurs are helpless in creating jobs if they do not have access to capital. Though stimulus bill pumped in monumental sums of bail out money, the banks have been quite ineffective in releasing funds to entrepreneurs. Banks are holding onto over 2 trillion dollars in reserve. Traditionally, banks have 10 to 1 ratio leverage when it comes to lending.  As a result, in essence banks are holding on to 20 trillion leverage in reserve – primarily citing on bad mortgage debacle – which is a relatively smaller concern from a big picture. In most cases, community banks continue to transfer most of the bad mortgage loans to Fannie and Freddie.

b. tax burden for entrepreneurs

Too much regulation on entrepreneurs and small businesses are never good for innovation and scalability. 120 billion dollar small business tax relief act in this bill is definitely a great news for entrepreneurs.  But, the government also needs to do more and in a sustainable way to make governance easier for entrepreneurs – so that they can focus on innovation and creating jobs. The tax relief measure like this one should not have to be renewed in an ongoing basis but would make a lot of sense to keep it as a standard tax code.

c. tax credits for manufacturing jobs

I started right out of engineering school in the manufacturing industry. Back in 1997, the manufacturing scene in the US was very healthy. Engineering jobs had close to 100% placement within manufacturing plants. That picture changed drastically as most of the jobs, factories moved to China – where for an instance, a million dollar plastic mold could be manufactured for a fraction of tooling cost here in the United States. We need to bring the manufacturing jobs back. There are some signs that clean tech manufacturing jobs are coming back to the United States. The incentives need to continue and grow that a cleantech manufacturing facility in China would want to relocate to California or Nevada – and the tax benefits would make a lot of sense in off-setting a higher labor cost.
d. Financial reform Bill needs to be enforced

Citing mortgage crisis and strict guidelines in the Financial Reform bill, banks are not trying too hard to release funds. Its true that the Financial reform bill has clasuses that requires the government to check on these banks every month and another set of strict measures to not allow similar bailouts in the future. But, this shouldn’t be the reason that the banks hold on to the reserve. Banks have resources and the backing of the governement to do the right thing and strategically help businesses, start-ups – who come in with innovative, sustainable ideas. SBA model might not be the most effective model in the 21st century. We will have to explore hybrid model where banks will take calculated risk ( between a strict risk driven venture fund and a secured/credit based loan) for sound business models.

About the Bill -

The bill has agreed to extend on most of the Bush’s tax cut for small businesses. As a compromise and the ‘triangular’ strategy that Obama seemed to be using – that unemployment insurance has also been extended. There is 120 billion dollar small business tax relief. There are some special tax provisions for setting up shops for manufacturing ( focusing on clean-tech)

End of the day, the strategic support in policies that the government provides makes a huge difference in fostering entrepreneurship and creating a nurturing environment for businesses. Governments around the world are getting smarter. Case in Point, Hong Kong with a strong tradition of fostering entrepreneurship, business climate regularly implements hybrid policies to help entreprenerus… and in bad economies, help the least privileged group of society. Hongkong’s recent measure to provide free rent for two months for the lowest 10% and help tax breaks for the seniors is a good example that there is room for small compromises.

2 Responses to “New tax bill : What It means for entrepreneurs”

  1. World Spinner says:

    New tax bill : What It means for entrepreneurs | 4 entrepreneur…

    Here at World Spinner we are debating the same thing……

  2. Steve Becker says:

    accurate regarding extending tax cut on time. I am a CPA and we had to put off tax filing repeatedly for small businesses because of the uncertainty throughout the year. good read!

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